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Report: HHS Suppressed Evidence of Massive ObamaCare Bailout Risk

A trove of just-released internal Obama Administration documents reveals that the President's top health care advisors were fully aware that a key component of ObamaCare presented a massive taxpayer bailout risk, but they chose to suppress the information in their frenzy to push the controversial legislation through Congress.

The documents, quoted extensively in a report released yesterday by the House Energy & Commerce Committee, reveal a shocking level of cynicism by the President's team -- cynicism that will cost Americans hundreds of billions unless the unpopular ObamaCare law is repealed.

The 185 internal HHS emails make for disturbing reading.

We see the Administration's own internal experts repeatedly warning Health and Human Services Secretary Kathleen Sebelius's political appointees of the likelihood of a bailout.

The actuaries explain that the provision of ObamaCare known as the CLASS Act is so poorly designed, it is financially "unsound," "unsustainable," and likely to prove "terminal."

What is CLASS? It's a federal long-term care insurance program that will pay participants a daily benefit to help cover their nursing home and home health care costs. Devised by the late Senator Edward M. Kennedy (D-MA), CLASS is different from previous federal health insurance programs, like Medicare and Medicaid, in that it purports to be entirely voluntary and entirely funded by individual participants' premiums, with no subsidies from either employers or federal taxpayers. Sounds like a great deal for everybody, right?

Guess what. Every actuary who has looked at CLASS has said the same thing: This won't work. The premiums are too cheap for the generous benefits offered. Since it's voluntary, with no mandate on individuals to participate, it will only attract older, sicker people who will take out a lot more in benefits than they paid in. So it'll go bankrupt. To make this thing work, you either need a mandate or large subsidies (i.e., a bailout). For more information on CLASS's fatal flaws, see the Joint Economic Committee's background paper on it.)

Publicly, Administration officials contended just the opposite. The program is sound, they protested, insisting that it would be voluntary to individuals and cost-free to taxpayers. But privately, they knew that just wasn't so. They had been warned by their own, highly respected Chief Actuary, Richard Foster.

On May 19, 2009, Foster told his superiors:

"The [proposed CLASS] program is intended to be 'actuarially sound,' but at first glance this goal may be impossible. . . . [The] substantial premium increases required to prevent fund exhaustion would likely reduce the number of participants, and a classic 'assessment spiral' or 'insurance death spiral' would ensue."

And again on June 29:

"I‘ve finished reviewing the two studies provided by Sen. Kennedy‘s staff regarding the CLASS proposal. I'm sorry to report that I remain very doubtful that this proposal is sustainable at the specified premium and benefit amounts. . . . Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue."

August 14: "As you know, I continue to be convinced that the CLASS proposal is not 'actuarially sound,' despite Sen. Kennedy's staff's good intentions. I assume you‘ve conveyed these concerns to the staff but, if not, let me know and we can express the concerns in a memo."

Despite these repeated, unmistakable warnings, HHS political appointees chose to whistle past the graveyard. They persisted in their public assertions that CLASS was "actuarially sound," citing a Congressional Budget Office estimate that showed the program would take in more money than it spent.

But this was disingenuous in the extreme. As drafted in the bill, the CLASS program would not begin paying out benefits until 5 years after it had begun collecting premiums. During its second or third decade, the program would certainly go belly up. But that didn't matter -- only the first decade counts for congressional voting purposes.

The internal documents reveal that some HHS insiders took seriously the actuaries' concerns about the bailout risk. In the blunt phrase of one official in the Office of the Assistant Secretary for Planning and Evaluation (ASPE): "Seems like a recipe for disaster to me."

On December 1, 2009, ASPE made this concern explicit, formally warning the Secretary that, because of its flawed structure, "The end result could be severe adverse selection that would in turn threaten the long-run solvency of the program."

But by then, the die was cast. The White House and congressional Democrats had already forced the President's health care bill, including CLASS, through the House and were now pushing it through the Senate.

Between Senate passage on Christmas Eve and final enactment in late March of 2010, HHS never stopped pressing for inclusion of CLASS, never admitted it knew of the fiscal danger the program represented.

Senator Ken Conrad (D-ND) had memorably warned his Senate colleagues that CLASS is “[A] Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of." But the Administration assured Senators that, once the bill passed, Secretary Sebelius would use her power under the statute to "fix" CLASS, by increasing the premiums.

But that was a misleading assurance. As Foster had warned, higher premiums can't by themelves prevent the program from needing a bailout to say in business. You also need a mandate on people to participate. (Which is why there is such a mandate in ObamaCare itself.)

The Department's internal experts kept warning of financial disaster. Those warnings continued to be suppressed.

"It appears that the significant fiscal concerns surrounding CLASS may have been silenced within the Department for political reasons and the fear that publicly discussing concerns about CLASS's sustainability could have jeopardized the bill‘s passage in the House."

Questions

What will this cost taxpayers? The HHS documents don't offer a precise estimate. In a July 6, 2009, letter to Congress, CBO wrote: "Overall, CBO estimates, if the Secretary did not modify the program to ensure its actuarial soundness, the program would add to future federal budget deficits in a large and growing fashion beginning a few years beyond the 10-year budget window." Based on CBO and HHS estimates, a reasonable guess is that CLASS could cost taxpayers more than $100 billion over the next 20 years.

If CLASS poses a bailout risk, why would the Administration have been so hell-bent to keep it in the larger bill? Answer: Money. Thanks to that 5-year initial lag in benefit payouts, during its first decade CLASS was projected to generate $71 billion in net premium collections. Team Obama desperately needed that money to help maintain the fiction that their bill was "paid for" and "wouldn't cost taxpayers a dime." Turns out it'll cost taxpayers a lot of dimes.

Would the Democrats in Congress have voted to ram ObamaCare through, if this information had been public? We can't know for sure. But without CLASS, they would have had to find that $71 billion elsewhere. That wouldn't have been easy.

What should we do about it? Congress should hold public hearings on this shocking new information: What did HHS and White House officials know and when did they know it?

It also reminds us yet again that there is only one sensible way to deal with the President's disastrously unaffordable health care law. It must be repealed and replaced with a patient-centered system -- a system that doesn't require bailouts.

the federal govt. should not be in the business of issuing loan guarantees.banks should do this .Do you think some govt.officials---perhaps some members of congress and maybe the pres.are getting kickbacks? how the hell can this govt. even think about lending money when the govt.is broke???? It's time to clean house once again on afederal level in 2012!!!!!!

This gov't and this administration are corrupt. That's the bottom line. There hasn't been an honest gov't in so long that Americans don't know what one is like. When are the people of America going to wake up and declare themselves to be free again? King George III of England, back in the 1700's, was declared guilty of many crimes and sins against the American people. We revolted. Done. Finished. We beat the most powerful military in the world at the time. Again, when are the American people going to declare themselves to be free of the chains of bondage? We have slimy socialists and communists, filthy islamists, radical revolutionaries of every stripe just frothing at the mouth to cause the most damage and anarchy they possibly can to our nation...and still the people sleep. When will the people wake up and declare themselves free? Are they so dumbed down and sedated that they can no longer feel anything? It's time to wake up boys and girls, time to wake up, the world is about to burn down around us. It's already happening all over Europe. It's happening, on a small scale but about to explode, in certain cities in America. How does it end? Yeah, it's time to wake up.

President Barack Obama delivered his sixth State of the Union address to Congress last night, laying out a litany of mostly terrible policy proposals, as well as attempting to defend his economic record. There's no denying that he's a strong orator who tells a story very well, but the substance of the speech itself was more of the same stale ideas and poor leadership that Americans have seen throughout the course of his presidency. Though there are plenty of policy items worthy of analysis, here are some lines that stuck out.

In the nearly five years since ObamaCare passed Congress and became law, Republican leaders have yet to rally around a specific set of healthcare alternatives. Railing against the 2010 law has been convenient for campaign trail rhetoric, but stalling, as the Supreme Court prepares to hear oral arguments in King v. Burwell, is no longer acceptable.

The Department of Health and Human Services (HHS) is seeking contractors for its latest ObamaCare-related endeavor, a massive data warehouse for storing consumer information. The Weekly Standard reports that the agency is building a database designed for "capturing, aggregating, and analyzing information" related to ObamaCare enrollees and Medicare recipients.

Americans already face a $1.8 trillion regulatory burden. These heavy costs are passed on by businesses to consumers, who spend almost a quarter of their annual income complying with regulations often approved executive-level agencies, which have effectively become the fourth branch of the federal government.

Hypocrisy has never been a stranger in the ivory towers of academia, but the latest development among the faculty at Harvard is a particularly delicious bit of irony. It seems that professors, like everyone, don’t much appreciate having to pay higher prices for health insurance. As a result of the Affordable Care Act’s mandates, however, prices are set to rise significantly within the halls of academia.

Before the initial ObamaCare open enrollment period, the Obama administration emphasized the need for millennials -- young people between the ages of 18 and 34 -- to sign up for health plans available on the exchanges. Health insurance companies need diversity in their risk pools to offset costs, because older and sicker people tend to utilize their coverage more often than the young and healthy.

One of the big arguments for ObamaCare is that the law has mechanisms in place that control healthcare costs, or at least that's what Americans have been told countless times by President Barack Obama and others. They've seized on recent reports of the slowdown in healthcare spending, frequently asserting that the 2010 law is responsible. In reality, the looming effects of the Great Recession is the main reason why healthcare spending has risen at a slower pace.

ObamaCare's individual mandate and bailouts aren't enough for the health insurance industry. The looming expiration of the two-year Medicaid payment increase has, once again, put health insurers on the same side as President Barack Obama and congressional Democrats, who want to extend the payments to doctors.

Roughly a month before videos surfaced in which he disparaged American voters and bragged about deceptive tactics used to ram ObamaCare through Congress, Jonathan Gruber, the controversial MIT economist paid nearly $400,000 to help craft the law, appeared on a panel with several other healthcare policy experts to talk about its progress and the continuing debate on healthcare reform.